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Distressed bonds decline in wake of Brexit vote; crude oil dives, energy sector debt follows suit
By Stephanie N. Rotondo
Settle, June 24 – It was a rocky day for the distressed debt market, as investors reacted poorly to news the United Kingdom had voted to leave the European Union.
The news came as quite a shock, as opinion polls had placed the vote at best 50/50. Odds-makers, however, insisted that the U.K. would opt to stay.
As soon as the markets opened, it was clear that there were some strong concerns about the decision, or at the very least, concerns about the uncertainties that come with the vote. The Dow Jones Industrials, for instance, were immediately down over 500 points. The losses were pared by mid-morning, but increased again by the bell, to end off 611 points.
The weakness was also seen in the high-yield market as a whole. One market indicator, the KDP High Yield index, retreated to 67.45 from 67.96, while yields widened to 6.21% from 6.06%.
Domestic crude oil prices, another market indicator, meantime dove over 5% to close at $47.59, retreating from levels over the $50-mark. The commodity’s price even shrugged off the somewhat positive news that active U.S. oil drills declined this week, after three weeks of additions.
Given falling oil prices, as well as the highly negative tone of the marketplace, debt linked to distressed commodities weakened.
Chesapeake Energy Corp.’s 6 5/8% notes due 2020 were seen dropping 2½ points to 72 bid, according to a market source. Another source said the 8% second-lien notes due 2022 fell to an 84½ to 85 context from 87½ to 88¼ previously.
Sector peer Denbury Resources Inc. saw its 6 3/8% notes due 2021 decline over a point to 70¼.
Even AK Steel Holdings Corp. was lower, even though that name has ben trending mostly up in recent weeks.
Its 7 5/8% notes due 2020 declined a deuce to 90½.
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